Cooper reaches deal with China tire partner

Closer cooperation pledged between firms

2/1/2014

BY TYREL LINKHORN BLADE BUSINESS WRITER

FINDLAY — Cooper Tire & Rubber Co. says a new agreement with its joint venture partner in China should allow the company to resume financial reporting and provide more clarity to the Cooper’s long-term strategy for growing its business in China.

The agreement with Chengshan Group Co. Ltd., announced Friday, guarantees normal operations at the CCT plant, including production of Cooper-brand tires.

It also lays out a process that would give Chengshan the opportunity to sell out or take full control of the business.

Currently Cooper owns 65 percent of CCT, with Chengshan owning 35 percent. Cooper says the plant can build 10 million tires a year.

Problems at the plant sprung up immediately after news of Cooper’s intention to sell itself to Apollo Tyres Ltd. of India last summer for $2.5 billion. Cooper officials said there were work stoppages and seizure of company property and that Cooper personnel were restricted from entering the facility or having access to financial data. Cooper still hasn’t reported its third-quarter financial results because of that.

The dispute in China was one of several issues that complicated the merger, which was eventually terminated by Cooper on Dec. 30.

On a Webcast with investors and stock analysts Friday, Chief Executive Roy Armes said Cooper has full access to the CCT facility now and that production is ramping back up.

Under the agreement, an independent valuation firm will determine the fair market value of the business. Chengshan will then have first option to either purchase Cooper's interest or sell out to Cooper, making CCT a wholly owned subsidiary of the Findlay company.

If Chengshan chooses not to exercise either of those options, Cooper can buy out Chengshan’s interest.

The two sides have set a basement valuation of $435 million, meaning Chengshan would have to pay at least $283 million if it wished to buy out Cooper. If Chengshan does purchase Cooper’s share, the plant would continue to make some Cooper-brand products for at least three years.

Officials said Cooper has a wide range of options to pursue growth in China under either scenario. In addition to the CCT joint venture, Cooper has a wholly owned Chinese subsidiary outside of Shanghai that can produce 5 million tires annually.

The company said annual production could be potentially be increased to 16 million at that facility.

Cooper makes truck and bus tires as well as passenger car tires in China. The business is focused on the replacement tire market, but Mr. Armes said the company has a growing number of original equipment partnerships.

Cooper said industry data predicts a 60 percent growth in China’s tire market over the next five years, making it the largest in the world.

“Pursuing growth in China remains one of the priorities of our strategic plan and under any scenario that results from the agreement we announced today, we believe this priority is fully supported," Mr. Armes said.

Cooper expects to have the valuation by mid-May. Officials said they hope to report their 2013 third quarter earnings in early March and their fourth-quarter and full-year results in late March.

Mr. Armes said Cooper expects to be profitable for the second half of 2013 even with the issues in China. He said the company remains strong.

“Cooper experienced serious challenges due to the now-terminated merger agreement and the effects of it on CCT. We take very seriously our obligations to customers, our employees, and our investors. We went into the merger in a very strong position and we remain in a very strong position,” he said.

Cooper and Apollo remain entangled in litigation in a Delaware court over whether either party owes the other a termination fee. No court dates have been set.

Shares of Cooper’s stock rose 2.5 percent Friday to $23.40. The company’s stock soared to nearly $35 per share following the deal, but currently is trading for less than it was when the deal was announced.